Confronting the Unsustainable Welfare State

About the Authors

Chuck DonovanSenior Research FellowDeVos Center for Religion and Civil Society

Fourteen years ago, an energized Republican Congress voted to reform a vital part of the nation's fast-growing welfare system. President Clinton signed the bill into law, promising that the measure would "end welfare as we know it."

But what began as a promising era of reform has completely collapsed. Government welfare spending is climbing rapidly, and at an unsustainable rate.

The Obama administration projects that over the next 10 years the United States, at all levels of government, will spend more than $10 trillion on means-tested welfare programs for the poor. And we're off to a galloping start.

President Obama's budget for next fiscal year would increase spending on these programs by 42 percent compared with President Bush's last complete budget.

Without doubt, the severe recession is to blame for some of this increase. But the Obama administration doesn't project a decrease in welfare costs after the recession ends.

Rising spending — reaching $944 billion in combined federal and state spending in fiscal 2011 — will soar past $1.3 trillion a year by decade's end.

Sums like this don't represent a war "on" poverty so much as an unconditional surrender "to" poverty.

America's welfare spending is unsustainable because the principles undergirding it are unsustainable as well. Back in 1996, when Congress replaced the failing program called Aid to Families with Dependent Children, the lawmakers installed a completely different model, Temporary Assistance for Needy Families, or TANF. They designed TANF to promote greater self-reliance.

The old model gave incentives to the states to add more people to the welfare rolls. TANF, however, required recipients to devote 20 to 30 hours a week to work or job preparation in exchange for their cash benefits.

Practically overnight, TANF converted welfare agencies into job-placement offices. Rather than receive federal funds for each new enrollee, agencies got their money as part of block grants with a fixed amount per state.

Adding folks to the welfare rolls no longer brought a state more federal dollars. In fact, when its job training and marriage promotion activities shortened the rolls, TANF allowed a state agency to apply the savings to other services for low-income residents.

The results were dramatic: Between 1996 and 2009, the states' welfare caseloads dropped from 4.5 million to 1.7 million, a decrease of 60 percent. The reason: greater employment, particularly for single mothers.

It was a win-win-win situation: States reduced budgets, women developed work skills and children benefited from their families' improved prospects.

The major limitation of the reform was that it applied to only one of 70 federal means-tested welfare programs.

And within the past two years, the gains under TANF have come to a screeching halt. Last year's "stimulus" package included a little-noticed provision depositing $5 billion in a TANF Emergency Fund. This fund once again incentivized the states to enlarge their welfare rolls, with little or no emphasis on job acquisition.

Less than 16 percent of the "emergency" spending has gone to support work strategies.

The situation is untenable. With the nation facing massive deficits, spending cuts are unavoidable. But policy reforms must guide the surgeon's hand.

Congress should restore the TANF work requirements of 1996. What's more, lawmakers should apply those requirements to food stamps, housing assistance and other welfare programs — which were supposed to help the poor, not make them dependent on government.

The new model shifted incentives for welfare administrators and recipients alike. Rather than give blank checks to program managers to pass along to beneficiaries, the 1996 reform encouraged work (or preparing for work), marriage and cost containment.

Once the recession ends, Congress also should restore aggregate spending for the 70 welfare programs to pre-recession levels and then cap total spending increases at the inflation rate.

Promoting healthy marriage also needs to become a centerpiece of welfare policy. Children born to and raised by single parents are seven times more likely to live in poverty than children born to and raised by married couples.

Congress can address this crisis with two vital first steps:

First, reduce the marriage penalty inherent in means-tested welfare programs; one way to do this is by increasing the earned income tax credit for married families with children. Second, provide information on the benefits of marriage to low-income neighborhoods, which have high rates of childbearing outside marriage.

If lawmakers are serious about welfare reform, they also should consider establishing a new principle of "reciprocal obligation."

Why not treat a portion of welfare assistance to able-bodied adults as a loan to be repaid, rather than as a free gift from the taxpayers? Such a policy change would reduce the moral hazard associated with dependency, while providing temporary help to those in need.

Clearly, welfare as we knew it did not end, as so many of us had hoped 14 years ago.

Adjusting for inflation, total welfare spending is nearly twice what it was before 1996. Hard-won experience and exploding deficits demand that we rebuild our anti-poverty policies on sustainable principles.

The good news is that stronger working families and sounder fiscal policies will go hand in hand.

Robert Rector and Charles A. Donovan are senior research fellows at the Heritage Foundation.